Customer & Supplier insolvencies: A risk to your business?
Insolvencies rose by 50%, surging to 3,736, between 10 March 2020 and 9 April 2020, compared with 2,495 in the same period last year. At the same time, we have seen some big retailers enter administration and others telling their suppliers not to expect payment for stock already ordered or delivered. These will all have knock on effects causing risks to other businesses.
Here are some tips to help you identify customers and suppliers who may be putting your business at risk:
- Carry out credit checks on your supply chain, especially for first time orders.
- If you see suppliers or customers are having frequent credit checks from other sources, this could indicate wider market concerns.
- Be alert to late payments and businesses attempting to change payment or delivery terms: they might be experiencing difficulties.
- Be aware of changes to bank details or financial arrangements: these might be an attempt to cover losses.
- Excuses and unanswered messages are often a worrying indicator
Knowing your customers and suppliers well will reduce the risks. However, having partnered with them for years is not necessarily enough: there needs to be a good level of trust and understanding on a personal and financial level.
You also need to ensure that your colleagues are not putting your business at risk by informally relaxing credit terms; explain to them the importance of cashflow and make sure payments are monitored, so debtors do not get out of hand.
Another step businesses can take is to purchase credit insurance. It is not untypical for 40% of a company’s assets to be accounts receivable, so why not insure these assets?
A credit insurance policy will monitor the financial security of your supply chain to give early warning of any potential problems. If there is a default then the insurer will attempt to recover but, if that is not possible, then the policy will cover the loss (usually 90%).